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Yahoo buying Foursquare for $100 million? Let’s check in.

Owen ThomasApril 6, 2010 3:48 PM

A report surfaced today that Yahoo is considering buying Foursquare for $100 million. The story, put out by Silicon Alley Insider, seems pretty preposterous, considering Foursquare is the hottest name in location-based services and currently has four top VCs all looking to invest in the company. So why would Foursquare founder Dennis Crowley possibly be considering selling his company to a troubled Internet giant?

There’s one likely explanation: Foursquare has hired amateurish investment bankers who think a leak could drive up the bidding.

Read between the lines of Silicon Alley Insider’s story:

Yahoo’s M&A deal-makers are deciding right now whether or not to buy super-hot location-based startup Foursquare for ~$100 million, says a source close to bankers involved in Foursquare’s current fundraising efforts.

Translation: Foursquare’s bankers are hoping to push the four venture capital firms said to be interested — Accel Partners, Andreessen Horowitz, Khosla Ventures, and Redpoint Ventures — into raising their bids from the currently rumored $80 million valuation by scaring them with the notion of a sale to Yahoo. (Or perhaps sustain their interest: Redpoint reportedly dropped out of the bidding last week.)

An $80 million valuation now would imply a much higher valuation on sale. So the notion of selling to Yahoo, famed for killing the cool Web companies it acquires, for a mere $100 million, seems ridiculous on its face. Especially when you consider that Crowley has already sold the same idea of a location-based friend-tracking service once to a big Internet company, Google, and saw it fade away to obscurity in the Googleplex.

The front-runner to win the deal is likely Gideon Yu of Khosla Ventures, who already won contested deals to invest in payment service Square and questions-and-answers site Hunch. Yu, the former CFO of YouTube and Facebook, knows all about holding auctions for investors. He’ll likely outbid the rest, knowing that he can later sell Foursquare off for that much more.

But will Yu, who helped buy Web startups like Flickr and Del.icio.us as Yahoo’s treasurer, be impressed by this kind of amateurish maneuver? We haven’t examined Yu’s Foursquare check-ins lately, but we don’t think he’s the mayor of Crazytown.